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Small economic losses lower total compensation for victims of emotional losses

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  • Zhang, Shirley
  • Hsee, Christopher K.
  • Yu, Xueer

Abstract

This article explores an important yet understudied topic – the lay public’s opinion of fair compensation for victims of emotional losses (emotional suffering). Four experiments, covering diverse contexts, find an anomalous phenomenon: laypeople would award less compensation to someone incurring an emotional loss if the person also incurs a small economic loss than if the person incurs little or no economic loss. We explain the effect using a reasonable-anchor account: if the victim incurs little or no economic loss, people will base their assessment of total compensation on what they consider the emotional loss is worth; if the victim also incurs a non-trivial economic loss, people will anchor their assessment on the economic loss, and if the economic loss is small, the compensation will also be small. In other words, the presence of an economic loss “crowds out” the emotional loss in assessment of total compensation. This research enriches our knowledge about how laypeople make compensation decisions for emotional losses, and when they use economic losses as anchors.

Suggested Citation

  • Zhang, Shirley & Hsee, Christopher K. & Yu, Xueer, 2018. "Small economic losses lower total compensation for victims of emotional losses," Organizational Behavior and Human Decision Processes, Elsevier, vol. 144(C), pages 1-10.
    • Handle: RePEc:eee:jobhdp:v:144:y:2018:i:c:p:1-10
    DOI: 10.1016/j.obhdp.2017.09.004
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    References listed on IDEAS

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    1. Kahneman, Daniel & Schkade, David & Sunstein, Cass R, 1998. "Shared Outrage and Erratic Awards: The Psychology of Punitive Damages," Journal of Risk and Uncertainty, Springer, vol. 16(1), pages 49-86, April.
    2. George Loewenstein, 2000. "Emotions in Economic Theory and Economic Behavior," American Economic Review, American Economic Association, vol. 90(2), pages 426-432, May.
    3. Hsee, Christopher K & Kunreuther, Howard C, 2000. "The Affection Effect in Insurance Decisions," Journal of Risk and Uncertainty, Springer, vol. 20(2), pages 141-159, March.
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